Energy security is a matter of economic security; The current geopolitical situation is another strong warning signal for Europe to make this a priority, says Debora Revoltella, chief economist of the European Investment Bank (EIB).
“After Russia launched a full-scale invasion of Ukraine in 2022, we experienced a long-lasting shock. Diversification has changed the reality since then, but the current situation is another strong warning signal for Europe to prioritize energy security. Since that crisis, Europe's energy security and independence have improved significantly, and the energy market has begun to transform. However, the system remains dependent on imports and requires further optimization,” Revoltella told PAP Biznes.
Stable energy sources are key
“In our latest report, we highlight the positive developments in renewable energy, but infrastructure investment must accelerate to ensure grid stability and electrification. Most importantly, energy security is a matter of Europe's economic security. They are crucial stable energy sources. As Europe imports oil and gas, accelerating the energy transition is crucial for security and competitiveness,” she added.
The economist pointed out in an interview with PAP Biznes that the impact of the ongoing war in the Middle East on the European economy will depend primarily on the duration of the conflict.
“The war in the Middle East is affecting the European economy primarily through the energy sector. This applies not only to oil, but also to gas and LNG. The key questions are how long this situation will last and what will be the scope of global disruptions in energy supplies and the reserves of individual countries. Several factors influence the course of these events,” said Revoltella.
“One is the political dynamics surrounding Donald Trump and the upcoming so-called midterm elections. Trump is motivated to avoid a protracted conflict and may seek to resolve it within four to five weeks. Although his personal goals may not determine the outcome, he may be trying to find a quick solution. Although the US president's activity on social media suggests a readiness to continue his actions indefinitely, political motivations may prompt him to calm the situation,” she added.
Further trade integration is crucial to support investment
In March, the European Investment Bank published its annual report, which includes review of factors influencing investments and their financing in the European Union. The report relies heavily on the results of the EIB's annual investment survey (EIBIS).
In an interview with PAP Biznes, the EIB's chief economist pointed out that further trade integration and regulatory simplification are among the key elements of investment support.
“Our report shows that Overall, investment in Europe remained stable. Public sector incentives have successfully supported overall investment, but private investment remains stagnant. The report emphasizes that a real acceleration in private investment must come from expanding business opportunities, not just public support. To create investment opportunities for companies, we should focus on the European single market, trade integration and simplification of regulations,” Revoltella told PAP Biznes.
“According to the study 62 percent European companies reported encountering barriers when exporting to other EU countries. Our models suggest that eliminating these barriers would increase companies' investment rates by 10%. These invisible barriers are specific lost business opportunities. There are many regulatory challenges in the EU environment. Completing the single market and supporting pan-European competition will naturally increase business opportunities and investment,” she added.
Digitization and AI – Poland is lagging behind
The economist pointed out that in terms of digitization and implementation of artificial intelligence in business processes, Poland lags behind other European economies.
“Although there are many highly competitive and innovative companies operating in Poland, some areas require more attention. For example, although the implementation of artificial intelligence in Europe is on par with levels in the US, Poland lags behind in terms of digitization and the implementation of artificial intelligence in business processes,” Revoltella told PAP Biznes.
“Although Europe has great potential for productivity growth thanks to artificial intelligence, companies often limit its use to specific areas, rather than experimenting in many sectors, as US companies do. Over the last five years, 12% of company productivity growth was due to the implementation of artificial intelligence,” she added.
High energy costs
In addition to innovation and the implementation of digital technologies, energy costs are also a major challenge in Poland.
“Energy costs are a more serious problem in Poland than in the rest of Europe, requiring greater investment in these sectors. Energy efficiency is another area where companies can improve and is already a major focus of investment,” said Revoltella.
“Although 52 percent of Polish companies perceive the energy transformation as a risk, not an opportunity – which is a higher percentage than the European average – they are investing heavily in technologies that reduce environmental pollution. Companies are aware that the energy transformation is inevitable and are taking actions to reduce the risk,” she added.
As she pointed out, although the percentage of European companies indicating energy costs as an obstacle to investment has dropped from 60 percent. to below 50 percent after 2022, it's 86%. Polish companies still mention them as a barrier.
Low level of investment in Poland
The EIB's chief economist assessed that although the short- and medium-term prospects for the Polish economy are good, the low level of investment is worrying.
“The Polish economy is strong and has recorded good results for over 30 years. The short- and medium-term prospects remain excellent – in 2026 and 2027, Poland's economic growth rate is expected to be the second in the EU, second only to Malta,” she said.
“However, the low level of investment is worrying. Due to Poland's historical dependence on fossil fuels, the transition to a green and circular economy requires greater private investment. Currently, private investment remains at pre-pandemic levels,” she added.
As she indicated, potential peace in Ukraine could provide a significant economic stimulus; Polish companies will be able to play an important role in the reconstruction of this country.
“Due to the proximity of the war in Ukraine, Poland has invested significantly in defense. Although the region bore the costs of the conflict, peace could provide a significant economic boost. After the end of the war, Polish companies will be able to play an important role in the reconstruction of Ukraine and benefit from the transition from war to peace,” the economist noted.
According to the EIB's chief economist, the impact of tariffs on Europe has so far been limited, although they have caused significant uncertainty.
“Analyses suggest that American companies feel the effects of these actions to a greater extent than European ones, and Europe has coped with the initial stages of the trade war. Companies are adapting to the current situation and getting used to the level of uncertainty, reacting less to individual news,” Revoltella told PAP Biznes.
“Nevertheless, this uncertainty is stifling investment. Our report reveals the 'uncertainty effect': a situation of instability is causing a 12 percent decline in investment in tangible assets and an even greater decline in intangible assets such as research and development (R&D) and innovation,” she added.
When asked about the growing competition from Chinese imports to Europe, Revoltella said that Europe's potential response should be tailored to specific products and sectors.
“To be effective, any European regulatory response to cheap imports from China must be tailored to specific products and sectors. Europe remains highly competitive in several sectors and has the technical potential to lead in others. By combining innovation with the size of the European market, we can increase our industrial capacity,” said the economist.
“The single market is crucial: not protectionism, but defense against unfair practices. If we support industries that are not innovative, we will encounter obstacles; effective support must be linked to innovation and energy transformation,” she added.
Patrycja Sikora (PAP Biznes)
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